Contributed by Tara Donaldson, Sourcing Journal
There’s no telling quite yet what 2017 will bring for the world considering the uncertain global climate, but when it comes to apparel, there are five trends apparel experts foresee shaping up in the coming year.
In a webinar presentation of her talk at CBX Global Sourcing Day last month, Jane Singer, managing director of market intelligence firm Inside Fashion said there’ll be five things to keep an eye on in 2017: changes in order sizes, China becoming a buyer, Vietnam rising, quality becoming an increasing priority and new routes to new markets.
1. Changes in order sizes
There continues to be downward pressure on the size of orders, and in the last three years, average order size has decreased between 20 percent and 30 percent.
“People want to have smaller inventories, they want to be able to modify things more, consumers are buying fewer but better, and there’s not this kind of just shop-till-you-drop that we used to have,” Singer said.
The downsizing has hit bigger factories, particularly in Asia, the hardest as they’ve been set up to handle huge orders ever since offshoring took off. Now, buyers are hardly placing orders for 100,000 dozen of one style, one color, Singer explained.
“So now you’re taking an entire business model that’s been set up a certain way and saying to these guys, ‘We need small orders, we need it faster, we need more complex orders.’ It’s tough for a lot of these factories,” Singer said.
To hold onto the volume of orders they’ve been used to, Singer said Chinese factories in particular are “really cutting their prices.”
Better factories are trying to reengineer and become high-end producers, going after more complex orders where there’s more price flexibility.
What some factories are doing—and even the high-end ones—is adopting a sort of shared capacity model, though it’s not the lambasted subcontracting or outsourcing that may come to mind.
Some factories, as Singer explained, are making agreements with other factories that if one gets a big order, they can place some of it in the other’s factory.
“Rather than investing in excess capacity, which may or may not be idle part of the time, it’s that kind of a shared, sort of a leased out capacity if you will,” Singer said. “And it’s amongst good players. It’s not just subcontracting and turning their back. They’re running it as it it’s their own factory but they’re using other people’s equipment and workers. We’re starting to see a lot more of that.”
2. China is becoming a buyer
For much of the last few decades, China has been considered the world’s factory, but the Asian powerhouse is increasingly becoming a buyer of consumer products.
The consumer economy has grown steadily in China, there isn’t the same unemployment problems that exist in other parts of the world, and consumers have pent up demand—a mix that makes for ample opportunity.
“There’s a buying capacity there that we can’t ignore as suppliers,” Singer said.
Chinese brands are also willing to pay a premium for better quality materials and often buy at the better end of a collection as there’s so much competition in the country that special is necessary.
“We think that’s a very important shift to be taking a look at,” Singer said.
China-based suppliers have started selling more into China and not just to foreign brands for export. According to Singer, the capacity Chinese suppliers are selling to domestic buyers compared to for-export has gone up to 50 percent of what they’re producing.
“Ultimately, we’re going to start to see more of a floor on prices,” Singer said. “It’s going to be harder and harder to push the price down as far as we’ve sort of been able to do in recent years.”
3. Vietnam rising
Vietnam fills an “interesting” niche as a sourcing destination, according to Singer, because it’s cheaper than China with better skills than Bangladesh.
It can also handle smaller orders than what has to be placed in Bangladesh, efficiency is increasingly improving, its free trade agreement with the EU looks to be nearing completion and its FTA with the Eurasian Economic Union (which includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia) took effect in October.
“Even without TPP, which tends to be the big topic when you talk about Vietnam, we still feel that Vietnam has a lot of opportunities,” Singer said.
There will be a continued investment in mills in Vietnam as the country lacks raw materials and still imports much of them from China, which doesn’t do much for speed to market.
But as the influx of manufacturing hits Vietnam, there’s going to be an upward pressure on wages and labor shortages.
“The more forward-thinking factories and the factories that are just being built are putting a lot into automation with that in mind,” Singer explained. “They’re going to have to get a lot more productivity out of workers because wages definitely are going to be going up.”
4. Quality is now a priority
The increased demand for quality comes more from the consumer side as the Internet has turned shoppers into savvier buyers.
Consumers can study products to understand what makes some things better than others and read reviews about the item.
“In the old days, people would buy something just because they liked it, the next bright, shiny object kind of thing. Nowadays, people will think about it,” Singer said. “Quality isn’t something we can just talk about. We have to address it.”
Brands and manufacturers will have to consider ways to add quality into a product, how to trade it up or find a way to personalize it. There will be a need to move away from basics into goods that add value.
5. New routes to new markets
With speed to market ever critical and brands battling the trade-off between price and speed, new routes to new markets will be key.
The major route to watch in 2017 will be the trans-Eurasia rail linking China to Europe and Russia.
“We feel that this link into Europe and into the developing areas in the Middle East and Russia is quite interesting in terms of new markets,” Singer said.
As brands and manufacturers look for greater speed to market at a cost they can still manage, tapping into rail will be a quicker yet cost-effective mode of transport over sea and air.
“This will be really impactful in growing the development of inland China and Western China and will also provide more opportunities for the export of goods coming from Europe into China,” Singer said.
In looking at how U.S. trade policy will affect trade and new markets since Donald Trump has been clear about stamping out certain trade deals and relationships, Singer said nothing too dramatic will happen too quickly.
“We think that there might be changes in trade but I don’t think it’s going to be anything too radical too fast,” she said. “It’s actually market reaction, it’s people being nervous about something and reacting to something more so than what’s actually happening that’s going to be impactful on consumer markets.”
The Trans-Pacific Partnership (TPP) that Trump has promised to do away with came with its own challenges too, Singer said, noting the multitude of mechanisms and clauses to be aware of before thinking everything would just be duty free.
“Think of it [TPP] as a bonus if you get it, but not as the bread and butter.”